Japan’s Line swings to full-year profit on higher ad revenue

The logo of free messaging app Line is pictured on a smartphone in this photo illustration taken in Tokyo, Japan

TOKYO (Reuters) – Japanese messaging app operator Line Corp <3938.T> announced on Wednesday it swung to a full-year net profit on the back of growth in advertising revenue, although operating profit undershot forecasts due to higher operating costs and payment settlement issues.

Line, Japan’s most popular instant messaging service which went public in the world’s biggest tech IPO of 2016, posted a net profit of 7.56 billion yen ($66.49 million) for the year ended Dec. 31, compared to a loss of 7.58 billion yen in the previous year.

The company, controlled by South Korea’s Naver Corp. <035420.KS>, generates most of its income from advertisements, mobile games featuring cuddly animals, and emoticon “stickers” which adorn messages.

Annual operating profit surged 10-fold from the previous year to 19.90 billion yen, boosted by growth in ad revenues, which jumped more than 50 percent in the fourth quarter alone.

But operating profit came in 17 percent lower than analyst forecasts for 23.91 billion yen according to a mean estimate from Thomson Reuters. Net profit was also lower than forecasts for a profit of 8.84 billion yen.

The company said that it had yet to settle some payments for its gaming and sticker content in the three months to December, resulting in a 678 million yen hit to quarterly operating income.

Increased hiring lifted operating expenses as Line expands its workforce, and these costs also capped operating profit in the fourth quarter. The company said it expected such costs would continue into the first quarter of 2017, although it still expected to post an operating profit during the period.